Flat Tax Philosophy
With Herman Cain on a tear with his 9-9-9 tax plan in tow, the resurrection of the Steve Forbes flat tax in the name of Rick Perry, and thoroughgoing tax reform on the lips of conservatives across the country, it seems time for a look at a philosophy of taxation that is truly radical, in a way that makes even the so-called "flat tax" look progressive by comparison.
Conservative thinkers universally accept the liberal economic dogma that taxation should be "progressive" -- that the better off should be taxed more than the worse off. Any form of taxation that does not do this is considered "regressive" and unfair to the worse off. Conservatives will argue that a flat tax is sufficiently progressive: if everyone is taxed at the same percentage rate, those who make more will pay more, and those who make less will pay less. But liberals call for a more progressive definition of "progressive": the better off should be taxed at a higher percentage rate than the worse off. While there is no upper limit set by economic liberals on how progressive taxation should be, it is universally accepted (by even conservatives) that the flat tax is as regressive as it gets -- the lower limit in the range of progressivity among tax plans that are worthy even of a polite response.
But if this is the right definition of progressivity, then what about payments we make that are not to the government -- for instance, for a gallon of gas? Are gas prices unfair to the worse off in society? Perhaps, after further reflection, some might argue that gas prices should be progressive, and that this should be enforced by government. This would be seen as a radical leftist proposal, and those in the middle would agree with conservatives that even if gas prices are regressive, it is no role of the government to enforce "fair" pricing to the rich and poor for goods offered by private industry. But aside from this disagreement over the proper role of government, it is hard to argue with the logic of the proposal in view of our universally accepted norms of taxation. Gas prices are regressive.
What about a loaf of bread? Is it fair that the rich should pay the same amount for a loaf of bread as the poor? Or a twelve-pack of Coke? Maybe bread and Coke retailers should voluntarily charge rich people more than poor people, even if the government should not try to enforce such a practice. It would never happen...but wouldn't it be fairer? After all, the rich have to buy bread. If there were full compliance among all the retailers, they'd have no choice but to pay the higher prices. So it's not inconceivable.
Luckily, we are nowhere near a level of liberalism that would make this sound like a good idea. It is universally accepted -- at least outside wacky academia -- that the sellers of goods should be able to charge just what they want for their goods within some basic standards of ethics (against racial discrimination, etc.). Government should stay out of it. We are, after all, a capitalist nation.
But of course, the government is also at times a seller of goods, such as court services, passage on toll roads, drivers' licenses, and entry to public parks. Perhaps if the government shouldn't get involved in the prices charged by private industry, it should make an effort to be "fair" to the worse off when it is the seller of goods. Gasoline taxes are supposedly used to pay for roads. Maybe the worse off should pay a lower rate per gallon of gasoline in taxes. It is painful to imagine the administrative headaches this would cause. But I mean ideally. Shouldn't government do this? If it could? Liberal thinkers?
The problem is that we conservative economic thinkers have gotten ourselves into a bungle by playing on the liberals' playing field. We have accepted that government goods are to be valued for each of us individually as a function of our income. This has led us to a situation where there is seen to be literally no logical limit to how much more the better off should pay in taxes than the worse off, so that the top 1% of income earners now pay 37% of income taxes. Such lopsided taxation has financed multi-generational exponential growth in government that has in turn left us with a $15-trillion debt, which is now being used to justify even more progressive taxes.
But government goods should not be valued on the basis of our incomes. The value of any good differs for each of us depending on our individual circumstances. A free pass into Yosemite National Park may be of no use at all to a guy in Miami Beach. But the price of a government good should be the same for everyone. For the goods we buy, we decide individually whether or not to pay the price based on how much we value them, depending on our individual circumstances. For most of what government does, payment is compulsory. But the "price" of these things should still be the same for everyone.
Consider the most fundamental good provided by government -- physical protection, from evils both within our society and without. Should the better off really have to pay a higher price for such protection than the worse off? Shouldn't everyone's life be valued equally, at least in government's eyes?
This is based on a philosophy of taxation that says that government goods should be valued for us equally, regardless of our means, just like any other good; since we all get the same goods, we should all pay the same price. After all, our nation was founded on a certain notion of equality: all men are created equal. This does not mean that government must eliminate inequality wherever it exists, but rather that it must treat everyone equally with respect to the goods that it properly provides. Not every aspect of our lives is within the proper purview of government. Each of us comes to the table with his own assets; government's only concern is with what is necessary to ensure a peaceful and just society. This imperative guarantees, incidentally, that inequality within society will be limited to protect our basic rights, no matter what disparity of incomes there might be. Everyone has the right to be secure in his person and property, and to be free of enslavement by others. So there is no need for government to address inequality of income in order to defend these rights.
A system of taxation that obliges this venerable notion of equality would have one set tax amount to be paid by everyone -- one fixed "price" for membership in our society. Of course, not all government goods would be paid for equally by everyone. Not everyone requires a passport, and some will use the civil court system more than others. For things like these, there would be user fees. But in the basic goods provided by government, each of us participates equally, and for these each of us would pay equally. This is a tax truly worthy of the adjective "flat."
Obviously, a tax amount small enough that it could be paid by everyone, when added up, would not be nearly enough to fund all the goods provided by the government today. So much the better. On this system, government would be required to live within its proper limits: defense, a judiciary, a police force. So a tax philosophy that rejects the liberal orthodoxy of progressivity offers a path back to a more reasonable role for government in our lives. What's not to like? Is this too far outside the boundaries of polite conversation in the current discussion of tax reform?
The author is an independent philosopher. He may be reached at firstname.lastname@example.org.